New Work Times (April 22,2012)
April 19, 2012, 5:42 AM
Vodafone’s Legal Notice Against India Could Be Followed by Others
By NEHA THIRANI
Dhiraj Singh/Bloomberg News
A woman sits outside a Vodafone India retail store in Mumbai,
Maharashtra, Nov. 15, 2011.
British telecom giant Vodafone Group’s legal proceedings against the
Indian government, announced Tuesday in reaction to a recent proposed
tax change, have little precedent in India, legal experts say.
Historically, India has had a limited number of bilateral trade
treaties, which kept the country from being named in disputes in
international courts, said Vyapak Desai, head of international dispute
resolution at Nishith Desai Associates.
Since 2011, though, the potential for these cases has increased, he
said, following a few years of increased financial investment in the
county, and a flurry of trade agreements. India has 80 bilateral
treaties in place, and there are several international cases pending
involving Indian companies, he said. However, Mr. Desai said it is
difficult to estimate the number of such cases because they are usually
kept under wraps and only become public knowledge when they are part of
a larger dispute.
So far, the international courts have ruled against the Indian
government only once in such a case.
This February, an international arbitration panel said the government
of India breached its obligations toward Australian mining company
White Industries, under the India-Australia Bilateral Investment
Treaty, which was signed on Feb. 26, 1999. A dispute between White
Industries and Coal India had been pending for eight years, and White
claimed the judicial delays amounted to an infringement of rights of an
investor. India was ordered to pay damages of $4.2 million plus $84,000
for the fees and expenses of arbitrators and $520,100 for arbitration
expenses (converted from Australian dollars at current rates) to White
Industries. The payments have to be made with additional annual
interest of 8 percent from March 24, 1998 until the date of payment.
The Dabhol power project in Maharashtra triggered the first-ever
invocation of international arbitration to solve an investment treaty
dispute in India. The project’s case was ultimately resolved out of
court.
Companies which could call for international arbitration against the
Indian government in the future include Norway’s Telenor, Russia’s
Sistema and London’s The Children’s Investment Fund, which is also
battling with Coal India, lawyers say.
“If you are attracting investors to the country by signing bilateral
treaties, the government has to ensure that their legitimate
expectations are met,” Mr. Desai said. “If the government acts
unreasonably, people will explore their options.”
The Indian government said in this year’s budget that it plans to
retroactively collect capital gains taxes on offshore acquisitions
involving Indian assets, after India’s Supreme Court ruled that
Vodafone was not liable for capital gains taxes related to an $11
billion acquisition in 2007.
Vodafone said Tuesday it has served a “notice of dispute” that asks the
Indian government to abandon retrospective aspects of the proposed
legislation. Vodafone said the legislation, which is expected to be
taken up by Parliament next month, would violate the international
legal protections granted to Vodafone under an investment treaty
between Netherlands and India.
“If the legislation as drafted is made law, Vodafone will take whatever
steps are necessary to protect our shareholders’ interests,” the
company said in a statement Tuesday explaining its suit.
The next step is a three-month period of negotiations between the
Indian government and Vodafone, said Dinesh Kanabar, chairman of KPMG’s
tax practice in India. After that, the issue can be referred to the
United Nations Commission on International Trade law, if both parties
agree, he said. If they don’t, the matter will be referred to a
three-member arbitration board.
“Invoking of an international arbitration is a serious step in the
process of dispute resolution,” Mr. Kanabar said. “This is, indeed, a
very strong message and is not merely a means of mounting pressure on
the government.” India’s finance minister, Pranab Mukherjee, said the
government would examine the notice.
”It is their (Vodafone’s)
prerogative and we will examine the notice. As a legal entity, they are
entitled to legal recourse,” Mukherjee said on Tuesday.
According to Nishith Desai Associates investment arbitration has become
a global trend in the past two years, with a jump in the number of
cases. In 2011 and 2012 alone there have been 120 cases of investment
arbitration initiated or pending, while previously there have been 450
recorded cases of investment arbitration since the inception of
international arbitration in bilateral investment treatiesodafone's
Legal Notice Against India Could Be Followed By Others
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